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Rockies Gas Production Finding Legs as Oil Drilling Picks Up in PRB

US natural gas and crude oil growth continues to show strong legs in 2014 with new records being reached on a nearly daily basis according to the latest pipeline flow data. Taking a look at the latest government statistics from the EIA-914 for natural gas production confirms the trends the market is observing in the pipeline flow data. Natural gas production from May reached the 78 Bcf/d mark and is on pace to potentially top 80 Bcf/d by the end of the year.

The interesting thing to note from the EIA-914 data is that the growth in natural gas is no longer isolated to the Northeast (Other – States).  Associated gas drilling in Texas, Louisiana, Oklahoma, New Mexico, and Wyoming have halted production declines in those regions and have started to send production higher in those areas as well.

One of the areas where decline has slowed and production now stands at the precipice of growth is the Powder River Basin (PRB).  Natural gas production in the region from 2005-2008 saw rapid growth as producers invested in drilling coal bed methane wells taking production to over 1.6 Bcf/d. With the downturn in natural gas pricing, production in the basin followed suit declining to just 0.9 Bcf/d at the end of 2013. However, that trend has started to flatten out as producers invest in multiple oil plays in the basin.

In 2013, producers drilled more than 250 horizontal wells according to data from RigData and production results from those wells are showing five formations as the leading contenders for economic development.  These five formations all had average initial production (IP) results in excess of 250 B/d  with the Turner, Parkman, and Frontier formations having individual wells with IP rates over 1200 B/d.  While the crude production rates show some uniformity in the average production rate of crude oil, the natural gas production rates show greater dispersion between the formations. The Niobrara formation shows the highest average initial production rates for gas with well productivity for gas nearly 5x that of the Shannon formation.

The above map highlights the dispersion of well results as measured by initial production rates in Converse and Campbell County, Wyoming. No clear trend has emerged from the well results on the most productive acreage in the play.  However, many producers highlighted the PRB in their second quarter announcements, increasing market excitement around basin development.

More announcements, more rig activity and good oil IP rates seem to indicate that the PRB is building momentum.   Does growth in major plays such as the Bakken, Eagle Ford, and Marcellus leave room for more PRB oil and gas?  It doesn’t seem like producers will wait to find out.

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Anthony (Tony) Scott has built an in depth understanding of the North American energy market by providing investment advisory services and leading teams of analysts focused on the North American energy complex. Mr. Scott has conducted hundreds of consulting engagements assisting producers, marketers, midstream, refiners and private equity understand how rapidly changing natural gas, natural gas liquids, and crude oil markets in North America would impact their assets.

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